Executive Summary: Back to Basics: An Economic Agenda for APEC

This
year's October 26-27 Asia Pacific Economic Cooperation (APEC)
conference in Los Cabos, Mexico, will focus primarily on APEC's
core mission of lowering barriers to trade and investment in an
effort to spur growth. The conference presents an excellent
opportunity for President George W. Bush to help set the global
trading system on a firm footing for sustained economic growth,
thereby strengthening the international community in its campaign
against global terrorism. President Bush must use APEC to promote
America's economic and strategic goals.

One
way the President can further economic cooperation in the Pacific
Rim is to renew America's commitment to free trade and investment.
Washington should move toward initiating new free trade agreements
with Australia, Taiwan, and New Zealand.

Although economic policy will be the
priority in Los Cabos, the war on terrorism cannot be neglected.
The President can pursue this critical issue at the APEC forum
through bilateral meetings. President Bush should devote most of
his limited time at the conference to bilateral meetings with
America's allies to demonstrate the United States' appreciation for
their efforts and bolster their commitment to the fight against
terrorism.

International
Trade. The global economy is in a slump largely because of
sub-par growth in Europe and the United States over the past year
and a decade of ongoing economic malaise in Japan. Low growth and
the uncertainty resulting from terrorism have retarded foreign
direct investment (FDI) flows to economies in the Asia-Pacific
region. Only China experienced an increase in FDI flows in 2001,
most of which went to China's export-processing sector.

The
economic slowdown and pessimism about near-term recovery have
increased pressure on governments to enact counterproductive
economic policies to protect influential domestic constituencies.
The steel tariffs initiated by President Bush, for example, have
hurt America's economy by encouraging inefficiency and increasing
costs for consumers and intermediate manufacturers. At the
same time, they have angered America's trading partners, who have
threatened retaliatory tariffs on U.S. goods. The 2002 farm bill,
which granted subsidies primarily to large, competitive
agribusinesses, produced similarly disastrous results.

The
APEC conference presents a unique opportunity to promote the
revitalization of the global economy through proposals for further
liberalization of trade and investment, increasing incentives for
economic growth. For the benefit of the American economy as well as
the global economy, the Bush Administration should advance free
trade and investment policies bilaterally, regionally, and
globally.

Terrorism. The APEC summit also presents
an opportunity for President Bush to speak directly to many world
leaders about terrorism and to gain and maintain their support.
Typically, the most important meetings that take place at such
international summits are the bilateral meetings between the U.S.
President and other world leaders. The Administration should
prioritize President Bush's time in Mexico for meetings with
countries that support the war on terrorism--notably Australia, the
Philippines, Korea, and Japan. Because Bush will already have met
with Chinese President Jiang Zemin before the October 25 summit, a
U.S.-China bilateral at APEC need not be a priority.

Key
Countries. Japan may be considered APEC's principal Asian
anchor. Its economic stability and prosperity are therefore
essential to the future health of the global economy. One
imperative topic for discussion at the APEC summit will be actions
that can be taken to restart the engine of growth in Japan.
President Bush must focus on giving Prime Minister Koizumi the
political support he needs to continue the reform and restructuring
of his nation's economy.

South Korea remains one of the United
States' most important allies in Asia. The two countries have many
more values and goals in common than points of disagreement.
President Bush should move the focus away from preoccupation with
differences toward the countries' shared commitment to peace,
stability, and economic prosperity in the region. Although North
Korea remains an ongoing security issue, it will be important to
prioritize discussion of economic policies, given that South Korea
now faces near-term economic problems.

On
the political front, China's representative at APEC will be
preoccupied with Taiwan. Economically, China is the rising power in
the Asia-Pacific, and China's accession to the World Trade
Organization at the beginning of 2002 should set the tone for its
contributions in the APEC forum. At the forum, President Bush
should discourage China's efforts to form an exclusionary free
trade zone with the Association of South East Asian Nations bloc.
The Chinese proposal for the "free" trade zone would exclude Japan,
Korea, and Taiwan, leading most observers in the region to regard
Beijing's motivation as mainly political.

Despite the fact that Taiwan is one of
Asia's economic powerhouses, that island nation is regularly
treated like a second-class citizen, even by APEC countries with
tiny economies. APEC must face up to its commitment to "treat every
member equally" and welcome and respect Taiwan's participation.

What the
President Should Do. To take advantage of the
opportunities presented at this year's APEC conference to promote
America's economic and strategic goals, President Bush should (1)
encourage economic reform in Japan and in Korea; (2) support
democratic Taiwan; (3) demonstrate appreciation for the
contribution of America's Allies in APEC; (4) forge free trade
agreements; and (5) set the stage for WTO negotiations.

-- Dana R. Dillon
is Policy Analyst for Southeast Asia, Balbina
Hwang is Policy Analyst for Northeast Asia, and John
Tkacik is Research Fellow in China Policy in the Asian Studies
Center at The Heritage Foundation. Brett D.
Schaefer is Jay Kingham Fellow in International Regulatory
Affairs in the Center for International Trade and Economics at The
Heritage Foundation.